ACCT1501 Case Study

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Transcript of ACCT1501 Case Study

Moreeeeeeee Weaknesseski's noteswoolies' performancenet profit for this year expected to grow 2-6%, (less than the 10yr growth rate previously)ROE expected to fall from 28% (2010-11) to 26.1% by 2013-14heavy capital investment in property development and new stores accumulated during GFCcan boost returns quickly by offloading some property assets (STRENGTH)shares cheaper than coles'

wesfarmers (coles) performancereturns on equity fallen from 25% (2006-07) to 8% after acquiring coles1/3 of woolies ROE (return on equity)citigroup expects ROE to rise from 8% (2010-11) to 10.1% this yera, and reach 11.4% in 2013-14improved returns in Coles and coalwoolies vs wesfarmers (coles)DANIEL'S SLIDEJoyce's notesWoolworths:Strength1 Woolworths is well positioned to benefit from a rebound in consumer spending if it occurs-Woolworths generates 97% of its earnings from retailing

Weakness1 Woolworths will be more exposed than westfarmers if consumer sentiment remains subdued.Strength:1 Positive prospect - Analysts and fund managers expect Wesfarmers (coles) to outperform Woolworths on almost every measure over the next 3 years-Earnings from coal are expected to double and earnings from insurance will rebound-Plenty of scope to boost margins which are about 4.2% and are expected to reach 5.4% in 2 years time

2 Diversified earnings from different areas-75% from retail / 25% from coal

Weaknesses- plans to open 39 new stores could harm other existing stores - Guadganuolo (aviva investors)

Concern over woolworths 7.4% grocery margins will come under pressure from new businesses, coles, aldi constco etcColesStrength:1 Positive prospect - Analysts and fund managers expect Westfarmers (coles) to outperform Woolworths on almost everymeasure over the next 3 years-Earnings from coal are expected to double and earnings from insurance will rebound

2 Diversified earnings from different areas-75% from retail / 25% from coal

Weakness:1 Low profit of TargetPerformance of Woolies 10 years - November 2010:- delivered total shareholder returns of 383% due to 18% compound annual growth in earnings and dividends per share- years How Woolies aims to restore growth:- Woolworths' actions have had detrimental effects on its performance. - Its eagerness to dominate the market is shown through the opening of 39 new supermarkets -

sales has increased by 4.8% - Woolworths food and liquor division reported revenue of $10.35 b and $13.2b across the entire supermarket division in Australia and New Zealand

This will :- delay required breakeven time - Affect the profits of existing stores- Due to this, the rate of return is expected to fall from 28% (2010-11) to 26.1% (2013-14)WoolworthsPerformance of Woolies 10 years - November 2010:Delivered total shareholder returns of 383% due to 18% compound annual growth in earnings and dividends per share- Growth slowed due to Coles - Coles outperformed woolies by 20% over 2 years- 3.8% growth in 2012Performance of Woolies over recent 2 years :- Net profit

for this year expected to grow 2-6%, (less than the 10yr growth rate previously)

- Restore earnings per share growth to 10%- look for partnerships overseas- increase home improvement market by $40 million- Open 100-150 big box masters stores over next few years.Woolworth Current PerformancePredicted perfromance for this yearWeakness:1 Low profit of Target and weak result from insurance 2 Woolworths still outperforms coles3 Increased water consumptionPresentation by:Wing Ki Kylie ChanAlicia NguyJoyce LimDaniel ChenThe strengths and weakness of Wesfarmers (Coles)Strengths and Weaknesses of Woolworths

Recent Performance23% increase in profits (Aug 2013)rate on equity fallen from 25% (2006-07) to 8% after acquiring coles1/3 of woolies ROE (return on equity)75% earnings from retail, 25% from other divisionPredicted Performancecitigroup expects ROE to rise due to improved returns in Coles and coal 8% (2010-11) to 10.1% this year, and reach 11.4% in 2013-14 Margins expected to reach 5.4% in 2 years timeEarnings would be $800 million (70%) higher than they are now if the had margins like woolworths.coal and insurance earnings expected to lift net profit by 31%Wesfarmer's (coles) PerformancePast Performancepast 2 yearsoutperformed woolies in terms of TSR by 20%

2011 results124% increase in coal earnings21% profit improvement at colesStrengthsSheer number of stores and branches - Woolworths supermarket, Dan Murphys and Woolworths liquor allow woolworths to avoid minor threats and grab opportunities.WeaknessesExcessive stores redistributes profit from nearby branches resulting in decreased average profit.Woolworths expansion into the "hardware" sector will incur heavy losses due to competition. eg. BunningsWoolworths shares are already slightly cheaper than wesfarmers with a market value of $34.43 per share as opposed to $43.00 for wesfarmers. It is predicted that this price gap would further increase by the end of 2013.THE ENDTo further boost marginsneed to reduce costs of doing businessneeds to improve supply chain efficiencyWoolworths faces increasing overhead expenses with rising grocery prices.

Company cannot compete with reduction in petrol profit marginsWoolworths stores are concentrated within New Zealand and Australia and derives 91.9% of its revenue from its Australian branchesin general, expected that Wesfarmers would continue to outperform woolies for the next three yearsDue to having 97% of its earnings from retailing: ie food and liquor and general merchandise, it is well positioned to benefit from an increase in consumer spending5 Year Share PricesColesWoolworthsWithin the past 5 years Woolworths has only had a small gain as opposed to Wesfarmers $30 increase